1. The money demand curve is _________ because a lower interest rate ___________.

A. upward-slopping; increases the opportunity cost of holding money.

B. downward-slopping; increases the opportunity cost of holding money.

C. upward-slopping; decreases the opportunity cost of holding money.

D. downward-slopping; decreases the opportunity cost of holding money.

2. The three main monetary policy tools are:

A. interest rates, taxes, government purchases, and transfers.

B. currency, near-moneys, and reserve ratio.

C. deposit insurance, discount rate (primary credit rate), and money multiplier.

D. reserve requirements, the discount rate (primary credit rate), and open-market purchases and sales of U.S. Treasury securities.

3. If the economy is suffering from a recessionary gap, the Fed should conduct _______ monetary policy by _________ the money supply.

A. expansionary; decreasing

B. expansionary; increasing

C. contractionary; decreasing

D. contractionary; increasing

4. Expansionary monetary policy:

A. increases the money supply, interest rates, consumption, and investment.

B. decreases the money supply, interest rates, consumption, and investment.

C. increases the money supply, decreases interest rates, and increases consumption and investment.

D. decreases the money supply, increases interest rates, and decreases consumption and investment.

5. Because classical economists stressed mostly the long run, they

A. perceived the economy as being mostly self-adjusting, with no need for governmental macroeconomic policies to bring about adjustment.

B. favored the use of fiscal policy over monetary policy.

C. expected the government to purge the rottenness out of the economic system every so often.

D. favored the use of monetary policy over fiscal policy.

6. Which of the following is probably the best explanation for why the official chronology of past U.S. business cycles maintained by the National Bureau of Economic Research goes back only to 1854 and not earlier?

A. The further back in time you go, the less economic data are available.

B. There may not have been business cycles, in the modern sense, much before 1854.

C. Before 1854 the U.S. economy was mostly agricultural and therefore the short-run aggregate supply curve was probably close to vertical (vertical meaning, for example, that short-run increases in output prices will not bring about increases in output) .

D. All of the above.

7. At the time of the Great Depression, there was

A. general agreement that monetary policy could help in the short run.

B. no widely accepted theory of why recessions happen.

C. general agreement that fiscal policy could help in the short run.

D. a consensus about what economic policies to adopt.

8. Keynesian economics emphasizes ______ shifts in aggregate ______.

A. long-run; demand.

B. long-run; supply.

C. short-run; demand.

D. short-run; supply.

9. The Great Depression was ended in the US by:

A. the government running deficits throughout the 1930s.

B. the government increasing the money supply throughout the 1930s.

C. central planning of the economy by the U.S. government.

D. huge Federal Government expenditures (financed by budget deficits) during WWII (early 1940s).

10. According to "Monetarism":

A. Congress and the President should be responsible for controlling the money supply.

B. output will grow steadily if the money supply grows at a steady rate.

C. the Fed should vary the growth rate of the money supply on a monthly basis.

D. changes in the money supply only affect the real output in the long run.

11. The 'monetary policy rule' of Milton Friedman (and his "Monetarist" followers) suggests

A. we need to follow the rules set by the Fed.

B. the Fed needs to follow the rules set by Congress.

C. the interest rate needs to grow at a slow and steady pace.

D. the money supply needs to grow at a slow and steady pace.

12. According to supply-side economics, tax cuts:

A. cause dangerous budget deficits.

B. unfairly sacrifice equity in favor of efficiency.

C. increase incentives to work and save and cause increases in potential output.

D. increase output by directly increasing aggregate demand.

13. Nearly all economists agree that increases in government spending can ______ aggregate ______.

A. increase; supply.

B. decrease; supply.

C. decrease; demand.

D. increase; demand.

14. Which of the following represents the consensus among most economists today with respect to the management of unemployment?

A. Government can't do anything about it.

B. Expansionary policy can be used to achieve permanently low unemployment.

C. Unemployment cannot be kept permanently below the natural rate of unemployment (because accelerating inflation would result).

D. Unemployment cannot be kept anywhere near the natural rate of unemployment.

15. Most economists now agree:

A. the government should seek to balance its budget.

B. fiscal policy can shift aggregate demand.

C. fiscal policy can change the natural rate of unemployment.